SriLankan in fares warning

Dubai, July 6, 2008

The airline industry will have to opt for a fundamental re-pricing of fares if fuel prices do not stabilise, SriLankan Airlines has warned.

Announcing a fuel surcharge on all tickets, the airline said fuel consists of 52 per cent of the airline's cost now as compared to 27 per cent of the total cost last year.

The decision to increase fares through a surcharge on all tickets from this month is due to the unprecedented rise in world fuel prices, a statement said.

Crude oil prices which averaged around $75 per barrel in 2007 have shot up to $141 for the first half of 2008, recording an 84 per cent increase.

“The speed at which world oil prices are rising is the biggest challenge for airlines. There is no time to manage the transition. While any business has to make sure its product reflects the cost of production, SriLankan is not passing on the total increase in the cost to its passengers,” it said.

The fuel surcharge will recover only 50 per cent of the additional costs incurred, said the statement. “At this juncture of volatility and soaring prices, the most practical way to respond to the sharp increase in cost is by way of a fuel surcharge based on distance. Fuel consists of 52 per cent of the airline's cost now as compared to 27 per cent of the total cost last year,” the airline said.

The surcharge differs according to the destination from $25 to $80 one-way, on short, medium and long haul sectors.

Last year IATA (International Air Transport Association) predicted a record profit of $9.6 billion for the airline industry in 2008. IATA has now predicted a total net loss of between $2.3 billion and $6.1 billion for the industry in 2008 depending on the level of the price of fuel.

“While this is the magnitude of the crisis caused within a year, the situation does not seem to be improving, despite analysts’ predictions. This situation will eventually lead to a fundamental repricing of fares if fuel prices do not stabilise,” it said. – TradeArabia News Service